Written by Jonathan Newell CEO & Founder of BareRock Limited
After 30 years in the Professional Indemnity Insurance (PII) market, I would say I’ve developed some rather strong opinions about how this industry works (or sometimes doesn’t work) for financial intermediaries. As such, I thought I’d take this opportunity to shine a light on the inner sanctum of PII – not the technical policy details, but rather assess some of the market dynamics that drive pricing and accessibility.
Rarely is the curtain pulled back on the PI market’s machinations, but if you want to navigate the insurance cycle correctly and ensure optimal protection, then this may be worth a read.
My hope is that by understanding these cycles better, advisers will be equipped to make more strategic decisions about their PII arrangements. Too often, I’ve seen quality firms caught out by predictable market shifts, sometimes with devastating consequences. If this piece helps even a handful of firms avoid that fate, it will have been worth writing.
A soft market.
After several years marked by capacity constraints, rising premiums and increasingly restrictive coverage terms, we’re now in the midst of what insurance professionals recognise as a ‘soft market’ in the UK Professional Indemnity landscape. For financial intermediaries that have weathered the recent hard market storm, this shifting environment might initially appear as welcome relief.
However as someone who has navigated the PII sector for three decades, I’ve observed this pattern repeat with remarkable consistency: market cycles are precisely that – cyclical. Today’s pricing relief invariably gives way to tomorrow’s corrections. The pendulum never stops mid-swing.
To understand what this means for financial advisers, it’s important to look at some of the global factors influencing PI premiums right now.
Global factors influencing PI premiums.
Investment returns: Insurers derive substantial income from investing premium pools before claims materialise. During periods of strong market performance and higher interest rates, these investment returns effectively help offset underwriting activities, enabling more competitive pricing. When investment yields diminish during economic downturns or low-interest environments, insurers must rely more heavily on premium income, resulting in firmer pricing and more stringent underwriting practices.
Reinsurance: Every insurer, regardless of size, requires reinsurance protection to safeguard their balance sheet against systemic and catastrophic losses. This ‘insurance for insurers’ allows them to manage their portfolios, transferring portions of risk off the books and maintain solvency. Shifts in reinsurance costs or capacity constraints – whether from major loss events or changing risk appetites – cascade through to advisers’ premiums with remarkable speed, particularly given the annual renewal cycle for most reinsurance contracts.
Interconnectedness: Today’s insurance marketplace functions as a deeply interconnected ecosystem. Most insurers operate as composites, simultaneously underwriting diverse risks: property in Florida, shipping in Asia, energy infrastructure in the Middle East, global cyber exposures and professional liability in the UK. This interconnectedness means significant losses in one sector or jurisdiction can trigger capital reallocation across all insurance lines as insurers reassess their overall risk exposure and pivot towards the profitable areas.
Financial Advisers can be more vulnerable than most.
Financial adviser PI is often more vulnerable, mainly due to additional, specific pressures felt by this sector.
The FCA’s periodic focus on specific areas, such as DB pension transfers one year, retirement income advice the next, creates concentrated risk periods that amplify underwriting nervousness. I’ve lost count of how many product-specific exclusions I’ve seen emerge overnight following regulatory intervention.
Our market relies on a small number of insurers with suitable expertise. Back in 2018-19, I watched several insurers withdraw from PII as a class within a few short months, creating a capacity crisis that sent premiums rocketing overnight. This supply squeeze became eye-wateringly expensive. Instances of premiums doubling or even tripling were commonplace – even for firms with spotless complaints records – purely because of market conditions.
Unlike motor or property insurance, PI claims can emerge decades after advice was given. I still see claims surfacing today from pension advice given back in the early 2000s. This time lag confounds accurate pricing and creates particular blind spots for newer market entrants.
Claims inflation has gone wild. The FOS award limit now sits at £445,000 – a significant increase that has dramatically upped the stakes on every complaint.
Public attitudes toward compensation have fundamentally shifted. Claims management companies have sharpened their tactics, driving both the frequency and severity of claims steadily upward. It’s a world away from when I started in this industry.
Shifting mindsets.
Over the three decades I have spent in the industry, I’ve seen an encouraging shift in how the most successful advice firms approach their PII arrangements.
The firms that thrive over the long term are those that have reconceptualised PII as a fundamental business asset rather than a compliance overhead. They evaluate their arrangements on total value rather than focusing solely on annual premiums.
One adviser I work with said this to me: “I wouldn’t choose my compliance consultant, my platform provider or my investment research tools based solely on who’s cheapest. Why would I do that with the insurance that protects my entire business and underpins client trust?”
It makes you think doesn’t it…?
Ultimately, when you shift your mindset from “how can I minimise this cost?” to “how can I optimise this protection?”, you make fundamentally different decisions.
Client outputs.
Crucially, quality PII arrangements extend far beyond protecting your balance sheet – it safeguards adviser-client trust and directly affects your ability to deliver excellent service. The results speak for themselves. Clients receive more tailored recommendations, experience more transparent complaint handling, and ultimately benefit from an advice firm that can remain focused on their needs rather than being distracted by insurance worries. And in contrast, firms playing the PI market often find themselves distorting their advice proposition to accommodate whatever restrictive terms their latest low-cost insurer has imposed. That’s neither good for business nor for clients.
Advisers; my advice to you right now is to use this benign environment to strengthen your position. Evaluate potential partners on stability, understanding of your business model and claims expertise – not just a price informed by current market conditions. Consider whether your current arrangements would withstand the stress test of a complex claim or the next market correction. Now is the time to invest in your own risk management to qualify for recognition and premium benefits. Build relationships with providers who have developed the capability to properly evaluate and reward your firm’s individual risk profile, rather than relying on broader market pricing that can change when conditions inevitably turn.
I’ve watched countless firms chase short-term premium reductions only to face painful corrections when market conditions inevitably shift. The firms that successfully navigate multiple cycles are those that view PII strategically, seeking stable partnerships that provide consistent protection regardless of market conditions.
The path to long-term success rarely follows the lowest-price route. It comes from building partnerships with providers who understand your business, recognise your quality, and remain committed through all market conditions.
